On October 8, 2015, the Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin concerning marketing services agreements (MSAs) under the Real Estate Settlement Procedures Act (RESPA).
RESPA was enacted by Congress to eliminate referral fees or kickbacks in connection with real estate settlements. Specifically, RESPA prohibits the giving or receiving of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” The statute includes both civil and criminal penalties for violations and covers a wide variety of services provided in connection with real estate settlement services, including (i) title searches, examinations, and insurance; (ii) services provided by an attorney; (iii) document preparation; (iv) property surveys; (v) providing credit reports or appraisals; (vi) inspections; (vii) services rendered by a real estate agent or broker; and (viii) loan origination, processing, and underwriting.
According to the CFPB, providers of settlement services in mortgage loan transactions often enter into MSAs, which agreements “are usually framed as payments for advertising or promotional services, but in some cases the payments are actually disguised compensation for referrals,” in violation of RESPA. Although the CFPB acknowledges that a determination of whether a particular MSA violates RESPA requires an analysis of the specific facts and circumstances related to the creation and implementation of the agreement, the CFPB’s bulletin warns that the following examples have resulted in enforcement actions for RESPA violations:
- title insurance company entering into MSAs in order to obtain referrals in exchange for the payment of fees, which fees were paid, in part, based on the number of referrals received and revenue generated therefrom
- settlement service provider hindering consumers' ability to “shop for mortgages” by burying the disclosure that the consumer has the right to shop for settlement services in a description of the services provided
- settlement service provider failing to disclose to consumers (i) its relationship with an affiliate that provided appraisal management services; and (ii) that the consumers had an option to shop for settlement services before they were directed to the affiliate
- title insurance company entering into oral agreements in which the company indirectly paid for referrals by subsidizing the loan officers’ marketing expenses, which led to liability for the lender for failing to detect and/or prevent the RESPA violations
In short, the CFPB’s bulletin warns that “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.” The bulletin encourages mortgage industry participants to carefully consider the compliance and legal risks associated with MSAs and to consider self-reporting its own conduct to the extent it may violate RESPA in accordance with CFPB’s earlier bulletin on responsible business conduct and self-reporting.
View CFPB’s Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements, here: http://files.consumerfinance.gov/f/201510_cfpb_compliance-bulletin-2015-05-respa-compliance-and-marketing-services-agreements.pdf.
View CFPB’s Bulletin 2013-06, Responsible Business Conduct: Self-Policing, Self-Reporting, Remediation, and Cooperation, here: http://files.consumerfinance.gov/f/201306_cfpb_bulletin_responsible-conduct.pdf.